Economics A-level Macro

Full employment (diverge)

where 3% of less of the labour force are unemployed

Full employment (free-market)

the level of employment occurring when the labour market is in equilibrium

employed

if you are actively seeking work and can start work immediately

inflation

is a general increase in price level

disinflation

is the rate of inflation when it is decreasing

recession

as two quarters of negative growth

balance of trade surplus

value of imports<value of exports

balance of trade deficit

value of imports> value of exports

national income

the flow of new output produced by the economy in a particular period

national capital stock

the stock of capital goods accumulated over time

capital consumption

capital goods that wear out over time. They are used up or consumed. If they are not replaced then the national capital stock will reduce

macroeconomic equilibrium

is the point at which aggregate demand for real output equals aggregate supply of real output

aggregate demand

the total planned spending in an economy over a given period of time at a given price level

aggregate supply

the total quantity of output that all the firms in an economy are willing to produce at a given price level

economic shocks

an unexpected event that causes a shift in AS and or AD for better or for worse

interest rates

can be seen as the cost of borrowing or the reward for saving

consumption

total planned spending by households on consumer goods and services

paradox of thrift

is what is good for the individual is not good for the economy

accelerator

is a change in the level of investment in new capital goods induced by a change in national income or output

expansionary effect

causes a rise in employment as an increase in aggregate demand

contractionary effect

causes a fall in employment as a decrease in aggregate demand

multiplier

measures the relationship between a change in aggregate demand and the resulting change in national income

marginal propensity to consumer

the proportion of an increase in disposable income that people plan to spend on domestically produced consumer goods

demand-led growth

as AD rises spare capacity is used up with little effect on prices then further growth is possible

supply-led growth

caused by any determinate of supply changes to increase AS

supply-side policies

deregulation and increasing productivity through education and training

economic cycle

big changes in the whole economy, refers to the idea that in developed economies growth as GDP appears to follow a pattern

Four types of unemployment

frictional, seasonal, structural and cyclical

Frictional employment

short-term and occurs as workers move between jobs

structural unemployment

arises due to a mismatch between the labour force as it exists and current demand for labour

cyclical unemployment

caused by lack of aggregate demand in an economy when it is in the recession phase of the economic cycle

Keynesian view of cyclical unemployment

he believed you could get 'sticky wages' he argued that if prices or wages do not self-correct the economy could settle at the much lower income level of output

free-market view of cyclical unemployment

in a recession wages would fall this brings businesses costs down shifting SRAS outwards which bring the price level down and output increases

capital transfers

those involving transfer of ownership of fixed assets and the sale or purchase of non-produced non-financial assets

frictional umemployment

unemployment that is short term and occurs as workers move between jobs

seasonal unemployment

short term unemployment when workers in particular industries are laid off at particular times of the year

Balance of payments

is the record of a country's transactions made with the rest of the world

current account

measure of how competitive a country is and the extent to which it lives within its means

balance of secondary income

payments made between countries without anything of economic value received in return

removal of controls

removal of trade tariffs, quotas and regulations

revaluation

exchange rate boost to make exports less attractive

budget deficit

G>T spending is greater than revenue

budget surplus

G<T spending is less than revenue

multipliers

marginal propensity to consume, marginal propensity to import and marginal propensity to tax

crowding out

demand side fiscal stimulus to pull an economy out of recession not when an economy is operating at capacity

public sector borrowing

demand side fiscal policy or discretionary fiscal policy

expansionary fiscal policy

increases the size of the budget deficit injects money into the circular flow

contractionary fiscal policy

G>T a withdrawal lower inflation, decrease in growth

Tax Definition

compulsory levies charged by central and local government to raise revenue primarily to finance government spending

direct taxation

taxes levied on income and wealth the obligation to pay cannot be transferred onto someone else

indirect taxation

taxes on spending- the tax falls on the seller of the good the seller simply increase the price to the buyer, thus effectively shifting the tax burden to the consumer

principle of taxation

equity is that tax needs to be fair and has lots of flexibility.

national debt

the sum total of all the loans that the government has had to take out to cover the costs of its spending over the years.

rolling over

the cost of servicing the national debt increases when more borrowing is added and also if the interest rate on the new loans is higher

reproductive debt-good

if the loan is used on an infrastructure project and the government acquires a wealth creating asset.

deadweight debt-bad

is the loan is used to pay public sector workers falsies,pay benefits or find a war there is no wealth creating asset gained.

sovereign debt

refers to the part of the nation debt that best has been issued in other currencies

cyclical budget deficit

a governments choice to intervene or to not which can be looked at like automatic stabilisers

financial crowding out

a government wanted to borrow to fund a deficit it would need to offer an attractive rate of interest to investors.

fiscal policy

the use of government tools of taxation and spending

main areas of taxation

income tax, VAT and national insurance

main areas of spending

social protection, health and education

capital transfer

which are those involving transfers of ownership of fixed assets and the sale or purchase of non-produced, non-financial assets cover intangible

foreign direct investment

involves the acquisition of real productive assets

direct investment

ownership and control of the assets, which re held by households or firms, could be between governments.

Portfolio investment

is done by banks and between them, held only by investment institutions like pension funds

advantages of FDI

increases aggregate demand, increased productive capacity, technology improvements, surplus on financial accounts, lower prices and finance public sector debt

expenditure switching

getting people to spend on domestically produced goods rather than imports

3 policies to take a BOP deficit

deflation, devaluation and direct controls

direct controls

import tariffs, quotas or bans all act to switch spending from imported to homegrown goods. Individual governments have only limited due to existing trade treaties and membership of organisations such as the EU and WTO

devaluation

when one currency devalues then imports become less attractive and exports become price competitive and the deficit decreases. SPICED

export-led growth

an increase in aggregate demand brings short-term economic growth and often the increase in AD is due to increased consumption

total managed expenditure

formal name for total government spending which breaks down into department expenditure limits and annually managed expenditure

department expenditure limits

this is a budget or spending limit set for departments

annually managed expenditure

in areas such as pensions and welfare spending cannot be directly controlled by expenditure

demand-led spending

annually managed expenditure covers areas where spending is demand-led such as the amount spent on unemployment benefits.

G<T

budget surplus, so spending is less than revenue so is a withdrawal and contractionary

G=T

balanced budget where spending matches revenue

G>T

budget deficit where spending is higher than revenue to is an injection and expansionary

structural budget deficit

it is a bigger concern as it arises when even operating as its optimal level the economy is not generating enough in tax to fund the desired spending

supply-side fiscal policy

it is long-term sustainable growth achieved by creating the conditions that promote enterprise: innovation, developing and improvement.

automatic stabilisers

the taxation and benefits systems can act as stabilisers smoothing out the economic cycle so that the peaks are not as high and the troughs not so low as they might otherwise be

discretionary fiscal policy

this refers to fiscal decisions taken by a government fiscal policy to achieve a particular goal.

supply-side key features

smaller state, lower spending, lower tax, monetary over fiscal

laffer curve

their theory says that taxes should be reduced up to a certain point to increase tax revenue

deregulation

as a policy counts as non-interventionist because once achieved the state will have reduced its influence in the chosen market

infrastructure and education

spending count as interventionists because the government is providing something that the market would not

wealth effect

lower yields (interest rates) leads to higher share and bond prices

borrowing cost effect

QE lowers the interest rate on Lon term debt such as government bonds and mortgages

lending effect

QE increases the liquidity of banks and increased lending from banks lifts incomes and spending in the economy

currency effect

lower interest rates has the side effect of causing the exchange rate to weaken which helps exports.

ultimate objective of monetary policy

is improved economic welfare

the bank rate

is the minimum rate at which the BoE will lend to commercial banks

prudential regualtion authority

sets standards for banks, building societies, insurance companies, etc. Can require individual firms to maintain specific capital reserves/ liquidity ratios

financial conduct authority

aims to protect consumers by imposing regulations on firms

insolvency

the value of the banks assets is less than the value of its liabilities

insufficient liquidity

the bank does not have sufficient cash to meet its day to dat needs

trickles down effect

rather than redistributing income by mans of tax and welfare payments supply-siders believe that wealth trickles down from rich to poor

supply-side improvement

any measures taken to improve efficiency, reduce costs, or become more competitive count as supply-side improvements

labour policy measures

reducing trade union power, marking hiring/firing easier, more flexible pensions, lower rates of income tax, reducing unemployment benefit, improving training schemes, promoting apprenticeships, allowing zero-hours contract